Another mixed trading day in Asia QBE Insurance warns of profit downgrade

We saw another mixed trading day in Asia today, with Hong Kong shares registering some gains while those in Tokyo losing some ground.

The latest consumer price data from China showed a 4.1 per cent increase, which is in line with market expectations.

In Australia, the market gave up earlier gains after QBE, a major insurance company, came out with a profit downgrade announcement.

It didn’t take long for the confession season to claim its biggest loser so far. The period between reporting season next month and the close of accounts in December 31st means companies that know their earnings are likely to fall more than market expectations must update as part of their continuous disclosure requirements.

Once the market darling in global insurance, QBE has today shocked markets by saying it expects 2011 earnings to fall by 40-50% on the prior year. The market was expecting a 7% rise.

It has been a very heavily shorted stock and the bears have got this one perfectly right. The damage is playing on the market as we write, with the stock last down around 23%.

Insurance companies are in the business of pricing risk and while QBE had previously boasted a strong decade performance, the number of catastrophes in such a short period of time has finally caught up to hurt the group’s bottom line.

Margins have been downgraded and many will now question the tone of management who only a few months ago was sounding very optimistic.

Overhanging this downgrade is a separate issue being investigated by New York authorities. There won’t be too many brave investors stepping in to catch this falling knife.